Gold’s rally loses steam as investors drift towards dollar
· Gold prices retreated on Thursday, a day after vaulting to nearly nine-year highs, as investors embraced the safe-haven greenback in the face of record U.S. coronavirus cases.
· Spot gold fell 0.6% to $1,799.23 per ounce, having surged to its highest since September 2011 at $1,817.71 on Wednesday. U.S. gold futures settled down 0.9% at $1,803.8.
· “Gold has been overbought quite a bit after it surpassed the $1,800 level and now we are seeing some investors selling off,” said Edward Meir, analyst at ED&F Man Capital Markets.
“The dollar is also climbing a bit, so that is weighing on gold as well. But there are no fundamental reasons as such for the pullback.”
· The dollar rallied from a four-week low as U.S. stocks fell with market sentiment turning cautious as the United States hit another record high on new coronavirus cases.
· U.S. Federal Reserve officials on Wednesday raised fresh doubts about the durability of the U.S. recovery, while new business surveys highlighted developing risks from the relentless coronavirus pandemic.
· “The $1,800 remains a strong psychological resistance level. Although bulls have cut through this level like a hot knife through butter, weakness below this point could trigger a decline back towards $1,765,” said FXTM analyst Lukman Otunuga.
“If $1,800 proves to be a new reliable support, this could open the gates towards $1,820 and $1,828.”
· Central banks worldwide have slashed interest rates in recent months, providing in some cases unprecedented amounts of stimulus to help soften the blow to the economy from the pandemic.
· Stimulus tends to boost gold, which is considered a hedge against inflation and currency debasement.
· “These stimulus (measures) are not going away very soon. If we see the global supply chain, it has been massively disrupted and that disruption adds to inflation as well,” said Ryan McKay, a commodity strategist at TD Securities.
· Gold topped $1,800 on Wednesday, marking a nearly nine-year high.
Its rally may not be over yet, according to Boris Schlossberg, managing director of FX strategy at BK Asset Management.
“Central banks are still going to have to keep rates very, very low, because their first and foremost priority right now in a post-Covid world is to maintain momentum, to maintain expansion as much as possible,” said Schlossberg. “So they’ll suppress interest rates, inflation will go a little bit higher, and of course gold loves nothing more than real interest rates going lower and lower and lower.”
He added that this environment is setting gold up to test its $1,920.30 all-time high set in 2011.
· Craig Johnson, chief market technician at Piper Sandler, said the charts back up Schlossberg’s bull case.
“This has been a 10-year base in the making. And as we’re moving above this $1,800 level, there’s zero question in my mind that we’re going to trade up toward about $1,912,” Johnson said during the same segment.
That marks 5% upside from current levels.
“The bigger the base, the bigger the move. And if you just measure the height of that base and stand it up, you could have a substantially higher price of gold in here as you start to break out even above that $1,912 level. ... If you don’t have gold, it looks like you need to add a little slice to your portfolios,” said Johnson.
· Among other metals, silver declined 0.9% to $18.61 an ounce having earlier hit its highest since September 2019 at $19.02.
Palladium climbed 1.1% to $1,936.51, while platinum slid 2.3% to $824.41.
Reference: CNBC
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